<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1996
----------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------- ---------------
Commission File Number 0-12188
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DEB SHOPS, INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-1913593
- ---------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9401 Blue Grass Road, Philadelphia, Pennsylvania 19114
- -------------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
(215) 676-6000
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(Registrant's telephone number, including area code)
Not Applicable
------------------------------------------------------------------------------
(Former name and address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of l934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, Par Value $.01 12,844,680
- ---------------------------- ---------------------------------
(Class) (Outstanding at October 31, 1996)
<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
I N D E X
Page
PART I. Financial Information:
Consolidated Balance Sheets - 1
October 31, 1996 and January 31, 1996
Consolidated Statements of Operations 2
Nine Months and Three Months Ended
October 31, 1996 and October 31, 1995
Consolidated Statements of Cash Flows - 3
Nine Months Ended October 31, 1996 and
October 31, 1995
Notes to Consolidated Financial Statements - 4
October 31, 1996
Management's Discussion and Analysis of
Results of Operations and Financial
Condition October 31, 1996 5-9
PART II. Other Information 9
<PAGE>
DEB SHOPS, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
OCTOBER 31, JANUARY 31,
1996 1996
----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $38,266,695 $51,569,038
Merchandise inventories 29,336,635 16,655,946
Income taxes receivable -- 2,171,828
Prepaid expenses and other 3,882,537 1,718,882
Current deferred income taxes 949,128 949,128
----------- -----------
Total Current Assets 72,434,995 73,064,822
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land 150,000 --
Building and improvements 4,090,498 1,982,000
Leasehold improvements 29,816,741 29,611,550
Furniture and equipment 15,810,154 16,135,884
----------- -----------
49,867,393 47,729,434
Less accumulated depreciation
and amortization 32,541,465 30,573,512
----------- -----------
17,325,928 17,155,922
----------- -----------
OTHER ASSETS
Goodwill, net of amortization of $232,089
and $71,412, respectively 2,986,316 3,146,993
Long-term deferred income taxes 1,062,212 1,062,212
Other 1,167,514 1,167,514
----------- -----------
Total Other Assets 5,216,042 5,376,719
----------- -----------
$94,976,965 $95,597,463
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $15,852,194 $ 8,585,210
Accrued expenses 4,782,097 4,532,801
----------- -----------
Total Current Liabilities 20,634,291 13,118,011
----------- -----------
Capital Lease Obligation 1,866,657 1,986,267
----------- -----------
COMMITMENTS
SHAREHOLDERS' EQUITY
Series A Preferred Stock, par value $1.00
a share:
Authorized - 5,000,000 shares
Issued and outstanding - 460 shares,
liquidation value $460,000 460 460
Common Stock, par value $.01 a share:
Authorized - 25,000,000 shares
Issued Shares - October 31, 1996:15,688,290;
January 31, 1996: 15,688,290 156,883 156,883
Additional paid in capital 5,541,944 5,541,944
Retained earnings 84,353,153 92,370,321
----------- -----------
90,052,440 98,069,608
Less common treasury shares, at cost -
October 31, 1996: 2,843,610;
January 31, 1996: 2,843,610 17,576,423 17,576,423
----------- -----------
72,476,017 80,493,185
----------- -----------
$94,976,965 $95,597,463
=========== ===========
The notes to consolidated financial statements are an
integral part of these financial statements.
-1-
<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
October 31, October 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Net sales $132,885,380 $123,089,966 $46,386,420 $41,671,729
Other income, principally
interest 1,628,828 1,721,595 402,175 451,449
------------- -------------- ------------ ------------
134,514,208 124,811,561 46,788,595 42,123,178
------------- -------------- ------------ ------------
Costs and Expenses
Cost of sales, including
buying and occupancy costs 110,958,924 102,918,396 38,886,501 35,535,789
Selling and administrative 29,894,795 29,035,448 10,664,092 9,781,569
Depreciation and amortization 2,622,555 3,000,331 879,089 1,004,899
------------- -------------- ------------ ------------
143,476,274 134,954,175 50,429,682 46,322,257
------------- ------------- ------------ ------------
(Loss) Before income taxes ( 8,962,066) ( 10,142,614) ( 3,641,087) ( 4,199,079)
Income taxes (benefit) ( 2,913,000) ( 3,397,800) ( 1,183,000) ( 1,405,800)
------------- -------------- ------------ ------------
Net (Loss) ($ 6,049,066) ($ 6,744,814) ($ 2,458,087) ($ 2,793,279)
============= ============== ============ ============
Net (Loss) Per Common Share ($ 0.47) ($ 0.53) ($ 0.19) ($ 0.22)
============= ============== ============ ============
Cash Dividend Declared
Per Common Share $ 0.15 $ 0.15 $ 0.05 $ 0.05
============= ============== ============ ============
Weighted Average Number of
Common Shares Outstanding 12,844,680 12,845,493 12,844,680 12,844,680
============= ============== ============ ============
</TABLE>
The notes to consolidated financial statements are an integral
part of these financial statements.
-2-
<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended October 31,
-----------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows (used in) operating activities:
Net (Loss) ($ 6,049,066) ($ 6,744,814)
Adjustments to reconcile net (loss) to net
cash used in operating activities:
Depreciation and amortization 2,622,555 3,000,331
Issuance of restricted incentive stock --- ( 41,325)
Loss on retirement of property, plant and equipment 306,075 387,799
Change in assets and liabilities:
(Increase) in merchandise inventories ( 12,680,689) ( 133,713)
Decrease in income taxes receivable 2,171,828 ---
(Increase) in prepaid expenses and other ( 2,163,655) ( 816,426)
Increase (decrease) in trade accounts payable 7,266,984 ( 4,263,749)
Increase (decrease) in accrued expenses 249,296 ( 456,217)
------------ ------------
Net cash (used in) operating activities ( 8,276,672) ( 9,068,114)
------------ ------------
Cash flows (used in) investing activities:
Purchase of business and related net assets,
net of cash acquired --- ( 4,468,016)
Purchase of property, plant and equipment ( 2,937,959) ( 926,034)
------------ ------------
Net cash (used in) investing activities ( 2,937,959) ( 5,394,050)
------------ ------------
Cash flows (used in) financing activities:
Preferred stock cash dividends paid ( 41,400) ( 41,400)
Common stock cash dividends paid ( 1,926,702) ( 1,926,702)
Repayment of notes payable --- ( 913,415)
Principal payments under capital lease obligations ( 119,610) ( 21,585)
------------ ------------
Net cash (used in) financing activities ( 2,087,712) ( 2,903,102)
------------ ------------
(Decrease) in cash and cash equivalents ( 13,302,343) ( 17,365,266)
Cash and cash equivalents at beginning of period 51,569,038 50,610,195
------------ ------------
Cash and cash equivalents at end of period $38,266,695 $33,244,929
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on capital lease obligation $ 300,000 $ 315,000
Income taxes 150,368 194,899
</TABLE>
The notes to consolidated financial statements are an
integral part of these financial statements.
-3-
<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
OCTOBER 31, 1996
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine months ended October 31, 1996 are
not necessarily indicative of the results that may be expected for the fiscal
year ending January 31, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1996. The Balance
Sheet at January 31, 1996 has been derived from the audited financial statements
at that date.
NOTE B - INCOME TAXES
The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using enacted tax rates and laws that are expected to be in effect when
the differences reverse. Deferred income taxes result principally from
differences in timing of recognition of overhead in inventory, deductibility of
certain liabilities and depreciation expense. The tax benefit for the nine
months ended October 31, 1996, is included in prepaid expenses and other on the
accompanying consolidated balance sheet.
NOTE C - STOCK OPTION PLAN
Effective October 1995, the Company adopted a new Incentive Stock
Option Plan (the Plan), which was approved by the shareholders at the annual
meeting held on May 22, 1996. The Plan is administered by a Stock Option
Committee (the Committee) designated by the Board of Directors. Under the Plan,
the Company may grant both "incentive stock options" as defined in Section 422
of the Internal Revenue Code of 1986 as amended, and non-qualified stock
options. Options under the Plan may be awarded to certain key employees of the
Company. The maximum aggregate number of shares of Common Stock that may be
delivered for all purposes under the Plan is 2,000,000, subject to standard
anti-dilution provisions. The price payable for the shares of Common Stock under
each stock option will be fixed by the Committee at the time of grant, but will
be no less than 100% of the fair market value of the Company's Common Stock at
the time the stock option is granted. Options are exercisable commencing one
year after date of grant, subject to such vesting requirements as the Committee
may specify. The granted options expire through January, 2001. Changes in
outstanding common stock options during the nine month period ended October 31,
1996 are summarized below.
Outstanding, beginning of year.............................. 355,000
Granted during period (at $3.25 per share)......... 35,000
Canceled during period............................. ----
Exercised during period............................ ----
--------
Outstanding, end of period
(at $3.25 and $3.50 per share)..................... 390,000
At October 31, 1996, there were 1,610,000 shares reserved for future
grant.
-4-
<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
OCTOBER 31, 1996
Deb Shops, Inc. (the "Company") operates 289 women's specialty apparel
stores offering moderately priced, fashionable, coordinated sportswear, dresses,
coats, lingerie, accessories and shoes. Junior sizes are offered in 279 of these
stores, with 96 also offering plus sizes and 18 also offering Tops `N Bottoms
merchandise. Ten stores offer only plus sizes. The Company also operates 10 Tops
`N Bottoms stores which sell moderately priced men's and women's apparel.
In October, 1995, the Company acquired substantially all of the net
assets of the Atlantic Book chain for a purchase price of approximately
$4,500,000. Atlantic operates 13 locations, including 10 "Atlantic Book Shops"
which are small limited selection book stores, generally open seasonally in New
Jersey and Delaware shore resort towns. Atlantic Books also operates 3 much
larger "Atlantic Book Warehouses" which are full-service book stores emphasizing
bargain books. The Atlantic Book Warehouse stores are located in
Montgomeryville, PA, Cherry Hill, NJ and Dover DE.
Results of operations for the Company for the nine months ended October
31, 1996, are presented on a consolidated basis and are segmented to provide
relevant information concerning the Company's retail apparel store business
which is the Company's principal line of business. In the opinion of management,
at the present time, the results of operations of the Company's book store
business are not material to the Company's consolidated results of operations
either (i) when compared to the Company as a whole or (ii) when compared to the
Company's apparel store business, and therefore, the Company has not separately
reported results of operations of the book store business.
Results of Operations - Consolidated
Net sales for the nine and three month periods ended October 31, 1996
increased $9,795,414 (8.0%) and $4,714,691 (11.3%), respectively, over the
comparable nine and three month periods of 1995. While the Company does not
consider the results of operations of the book store business to be material to
the consolidated results of operations at the present time, the increase in net
sales was principally attributable to the sales generated by Atlantic Books. For
further information see Results of Operations - Apparel Business.
The Company had a net loss of ($6,049,066) and ($2,458,087) for the
nine and three months ended October 31, 1996 as compared to a net loss of
($6,744,814) and ($2,793,279) for the nine and three months ended October 31,
1995. The net loss was primarily attributable to the decrease in margins in the
apparel business as a result of the start-up of the "Plus Size" segment. The net
loss for the nine months ended October 31, 1996 also includes a $560,000 charge
for the termination of our private label credit card program. The Company
continues to accept third party credit cards at all of its stores. Sales and
margins at these levels are insufficient to cover fixed overhead. Comparable
store sales, for the apparel stores, increased by 11.0% and 14.7%, respectively,
for the nine and three months ended October 31, 1996, as compared to a decrease
of (8.6%) and (12.5%) for the nine and three months ended October 31, 1995. This
increase is due primarily to the start-up of our "Plus Size" business, along
with a change in competitors, changes in fashion trends, along with changes in
in-store merchandising. Net loss as a percentage of sales was (4.6%) and (5.3%),
respectively, for the nine and three months ended October 31, 1996 as compared
to (5.5%) and (6.7%), respectively, for the nine and three months ended October
31, 1995.
-5-
<PAGE>
Cost of sales, including buying and occupancy costs increased
$8,040,528, (7.8%) and $3,350,712, (9.4%), respectively, over the comparable
nine and three month periods of 1995. The increase in cost of sales, buying and
occupancy costs was principally due to the decrease in margins as a result of
the start-up of our "Plus Size" business. As a percentage of net sales, these
costs were 83.5% and 83.8%, respectively, for the nine and three periods ended
October 31, 1996 as compared to 83.6% and 85.3%, respectively, for the nine and
three month periods ended October 31, 1995. Buying and occupancy costs for the
nine and three month periods ended October 31, 1996 were 20.4% and 19.6% of
sales and for the comparable nine and three month periods in 1995 were 23.2% and
22.5% of sales. This percentage decrease was the result of a decrease in the
number of apparel stores along with an increase in the sales per store during
the period. Additionally the decrease resulted from a higher level of occupancy
costs associated with apparel stores that had been closed during the prior year.
Selling and administrative expenses for the nine months ended October
31, 1996 increased $859,347 (3.0%) and for the three months ended October 31,
1996 increased $882,523, (9.0%) over the comparable periods in 1995. The change
in selling and administrative expenses for the nine months ended October 31,
1996 includes a $560,000 cost for the termination of our private label credit
card program in the second quarter of the year and a continuing control over
expenses. As a percentage of net sales, these expenses were 22.5% and 23.0%,
respectively, for the nine and three months ended October 31, 1996 as compared
to 23.6% and 23.5%, respectively, for the nine and three months ended October
31, 1995. The decrease as a percent of net sales is due to increased levels of
net sales and continuing control over expenses.
The decrease in depreciation and amortization expenses ($377,776) and
($125,810), respectively, for the nine and three months ended October 31, 1996
over the comparable periods of 1995 was principally attributed to the write-off
of leasehold improvements of closed stores net of the remodeling of certain of
the Company's apparel stores.
Results of Operations - Apparel Business
<TABLE>
<CAPTION>
Per Store Data(1) October 31
Nine Months Three Months
---------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Stores open at end of period 299 326 299 326
Average number of stores in operation
during period 301 336 299 330
Average net sales per store(in thousands) $ 417 $ 366 $ 146 $ 126
Average net (loss) per store(in thousands) ($ 22 ) ($ 20 ) ($ 9 ) ($ 8 )
Comparable store sales2 - Percent Change 11.0% ( 8.6%) 14.7% ( 12.5%)
</TABLE>
Net sales for the nine months and three months ended October 31, 1996
increased $2,950,138, (2.4%) and $2,448,865, (6.0%), respectively, over the
comparable nine and three month periods of 1995. The increase in net sales was
principally attributable to the start-up of our "Plus Size" business. Until the
prior quarter, on an annual and quarterly basis, the Company has trended toward
lower sales since fiscal 1993. On an annual basis the Company has trended toward
lower earnings since fiscal 1991. Sales had been lower due to lower demand as a
result of increased customer resistance to product and pricing. Management has
tried and continues to try to adjust the product mix and pricing philosophy
- --------
1 Includes Tops `N Bottoms
2 Comparable store sales includes stores opened for both periods in the
current format and location. A store is added to the comparable store
base in its 13th month of operations.
-6-
<PAGE>
in an attempt to stimulate sales. In March, 1995 the Company introduced shoes
into 200 of its locations in an attempt to generate new business and multiple
sales. During the second quarter "Plus Sizes" were introduced into approximately
one-third of the chain. The goal of this operation is to offer a larger
assortment of merchandise to an expanded customer base to help increase sales
per store. The Company's "Plus Size" began on or about May 1, 1996 and generated
sales of approximately $9,900,000 since inception.
In spite of the increase in net sales the apparel business suffered a
net loss of ($6,586,718) for the nine months ended October 31, 1996 and
($2,692,567) for the three months ended October 31, 1996 as compared to a net
loss of ($6,765,369) for the nine months ended October 31, 1995 and a net loss
of ($2,813,834) for the three months ended October 31, 1995. The loss was
primarily attributable to lower margins as a result of the start-up of the "Plus
Size" business. As a result of the introduction of "Plus Sizes" in May, 1996 and
the necessity to sell through that first season's inventory in three months,
margins were only maintained at minimal levels. These lower margins on the "Plus
Size" business were sufficient to adversely affect the overall margins for the
entire apparel business. The net loss for the nine months ended October 31, 1996
includes a one-time $560,000 charge for the termination of the private label
credit card program. Sales and margins at these levels are insufficient to cover
fixed overhead. Comparable store sales increased by 11.0% and 14.7% for the nine
and three month periods ended October 31, 1996, as compared to decreases of
(8.6%) and (12.5%) for the nine and three month periods ended October 31, 1995.
The Company believes that the increases in comparable store sales resulted
principally from a renewed interest, by the Company's target customer, in the
current fashion trends, the new visual merchandising being employed in our
stores, the introduction of the "Plus Size" business and a change in
competitors. The net loss as a percentage of sales was (5.3%) and (6.2%) for the
nine and three month periods ended October 31, 1996 as compared to (5.5%) and
(6.9%) for the nine and three month periods ended October 31, 1995.
Cost of sales, including buying and occupancy costs increased
$3,445,095, (3.4%) and $1,839,297, (5.2%), respectively, over the comparable
nine month and three month periods of 1995. The increase in cost of sales,
buying and occupancy costs was principally due to the decrease in margins
related to the start-up of the "Plus Size" business as discussed above. As a
percentage of net sales, these costs were 84.5% and 84.9%, respectively, for the
nine and three month periods ended October 31, 1996 as compared to 83.7% and
85.5%, respectively, for the nine and three month periods ended October 31,
1995. The increased cost of sales percentage resulted principally from lower
margins as discussed above. Buying and occupancy costs for the nine months and
three months ended October 31, 1996 were 20.8% and 19.9% of sales and for the
comparable periods in 1995 were 23.3% and 22.7% of sales. This percentage
decrease was the result of a decrease in the number of stores along with an
increase in the sales per store during the period. Additionally, the decrease
resulted from a higher level of occupancy costs associated with stores that had
been closed during the year.
The inventory turn-over rate was approximately 2.4 times during the
nine months ended October 31, 1996 and 2.6 times during the nine months ended
October 31, 1995. Due to the comparability of these turns, the Company believes
that the impact on profit margins is not material.
Selling and administrative expenses for the nine months ended October
31, 1996 decreased ($412,365) (1.4%) and for the three months ended October 31,
1996 increased $508,462 (5.3%) over the comparable periods in 1995. The change
in selling and administrative expenses for the nine months ended October 31,
1996 includes a $560,000 cost for the termination of our private label credit
card program in the second quarter of the year and a continuing control over
expenses. As a percentage of net sales, these expenses were 22.7% and 23.3%,
respectively, for the nine month and three month periods ended October 31, 1996
as compared to 23.6% and 23.5%, respectively, for the nine month and three month
periods ended October 31, 1995. The decrease as a percent of net sales is due to
increased levels of net sales and continuing control over expenses.
-7-
<PAGE>
The decrease in depreciation and amortization expenses, ($597,943) and
($192,981), respectively, for the nine month and three month periods ended
October 31, 1996 over the comparable periods of 1995 was principally attributed
to the write-off of leasehold improvements of closed stores, net of the
remodeling of certain of the Company's stores.
LIQUIDITY AND CAPITAL RESOURCES
During the three and nine months ended October 31, 1996 and 1995, the
Company funded internally all of its operating needs, the remodeling of existing
stores in fiscal 1996 and 1995 including capital expenditures for the opening of
new stores in fiscal 1995. For the nine months ended October 31, 1996, the
Company used net cash of $8,276,672 in operating activities as a result,
principally, of the net loss for the period, increased prepaid expenses and
merchandise inventories, partially offset by an increase in trade accounts
payable, a decrease in income tax receivable and depreciation and amortization.
The increase in merchandise inventories for the nine months ended October 31,
1996 was higher than for the comparable nine months ended October 31, 1995
principally due to the rebuilding of total inventory per store and the
introduction of plus sizes. For the nine months ended October 31, 1995, the
Company used net cash of $9,068,114 in operating activities as a result,
principally, of the net loss for the period, increased prepaid expenses and a
decrease in trade accounts payable partially offset by depreciation and
amortization. The Company realized a loss for the fiscal year ended January 31,
1996 and the nine months ended October 31, 1996. A tax benefit and corresponding
receivable were recorded for each period based on estimates of the amounts
recoverable.
Net cash used in investing activities was $2,937,959 and $5,394,050 for
the nine months ended October 31, 1996 and 1995, respectively. In October, 1995,
the Company acquired substantially all of the net assets of the Atlantic Books
chain for a purchase price of $4,468,016, which purchase price was funded from
the Company's internal funds.
Net cash used in financing activities was $2,087,712 for the nine
months ended October 31, 1996 and $2,903,102 for the nine months ended October
31, 1995. For the nine months ended October 31, 1996 and 1995 these funds were
primarily used for the payments of dividends on preferred and common stock.
As of October 31, 1996, the Company had cash and cash equivalents of
$38,266,695 compared with $33,244,929 at October 31, 1995. The Company
terminated its private label credit card program as of June 30, 1996. With the
payment of a termination fee of $560,000, the bank will assume all future
obligations associated with the portfolio. The Company continues to accept third
party credit cards at all of its stores.
The Company's present intention is to expand the book store business by
opening additional warehouse stores. Opening a warehouse bookstore is capital
intensive, between leasehold improvements and initial inventory. It is
anticipated that the funds to finance this expansion will come from the cash and
cash equivalents on hand. As of the balance sheet date, there was a commitment
for the opening of two additional warehouse stores. One of those locations is
leased and is currently under construction. The Company purchased the other
location for a warehouse bookstore for approximately $2,100,000 on May 29, 1996.
It is generally not the Company's intention to purchase store locations.
However, when the location and the economics are suitable, such transactions
will be evaluated. There are no known other trends or commitments, events or
other uncertainties that are reasonably likely to result in the Company's
liquidity increasing or decreasing in any material way.
-8-
<PAGE>
SEASONAL NATURE OF OPERATIONS
The following table shows the Company's net sales and net earnings per quarter
for the fiscal year ended January 31, 1996 on an unaudited basis.
Net Sales Net Income
-------------------- ----------------------
Amount % Amount %
(Dollars in Thousands)
1st Quarter $ 39,101 22.1% ($2,299) ( 54.5%)
2nd Quarter 42,317 23.9 ( 1,652) ( 39.1 )
3rd Quarter 41,672 23.6 ( 2,793) ( 66.1 )
4th Quarter 53,643 30.4 2,520 59.7
-------- ------ -------- ------
TOTAL $176,733 100.0% ($4,224) 100.0%
======== ====== ======== ======
Approximately 54% and (6%) of the Company's net sales and net (loss),
respectively, for fiscal 1996 occurred during the last six months, which
includes the Back-to-School and Christmas selling seasons.
PART II. OTHER INFORMATION
Items 1 - 3. NOT APPLICABLE
Item 4. NOT APPLICABLE
Item 5. NOT APPLICABLE
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit No. Description of Document
11 Computation of Earnings Per Share
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company
during the quarter ended October 31, 1996.
-9-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DEB SHOPS, INC.
DATE: By /s/ Marvin Rounick
-------------------------------
Marvin Rounick
President
DATE: By /s/ Lewis Lyons
-------------------------------
Lewis Lyons
Vice President, Finance
Chief Financial Officer
<PAGE>
EXHIBIT 11
DEB SHOPS, INC. AND SUBSIDIARIES
COMPUTATION OF PRIMARY EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Nine Months Ended October 31 Three Months Ended October 31
---------------------------- -----------------------------
1996 1995 1996 1995
---- ---- ---- ----
PRIMARY
<S> <C> <C> <C> <C>
Average shares outstanding 12,844,680 12,845,493 12,844,680 12,844,680
Net effect of dilutive stock
options and restricted incentive
stock based on the treasury stock
method using average market price 0 0 0 0
------------ ------------ ------------ ------------
12,844,680 12,845,493 12,844,680 12,844,680
============ ============ ============ ============
Net (Loss) ($ 6,049,066) ($ 6,744,814) ($ 2,458,087) ($ 2,793,279)
Preferred dividend paid 41,400 41,400 13,800 13,800
------------ ------------ ------------ ------------
($ 6,090,466) ($ 6,786,214) ($ 2,471,887) ($ 2,807,079)
============ ============ ============ ============
Per common share amount ($ .47) ($ .53) ($ .19) ($ .22)
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> OCT-31-1996
<CASH> 38266695
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 29336635
<CURRENT-ASSETS> 72434995
<PP&E> 49867393
<DEPRECIATION> 32541465
<TOTAL-ASSETS> 94976965
<CURRENT-LIABILITIES> 20634291
<BONDS> 0
460
0
<COMMON> 156883
<OTHER-SE> 66806730
<TOTAL-LIABILITY-AND-EQUITY> 94976965
<SALES> 132885380
<TOTAL-REVENUES> 134514208
<CGS> 83861670
<TOTAL-COSTS> 143476274
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (8962066)
<INCOME-TAX> (2913000)
<INCOME-CONTINUING> (6049066)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6049066)
<EPS-PRIMARY> (0.47)
<EPS-DILUTED> (0.47)
</TABLE>
